Good faith: Overview, definition and example
What is good faith?
Good faith means acting honestly, fairly, and with genuine intent in a contract or business relationship. It’s the expectation that both parties will deal with each other openly and without trying to deceive or take unfair advantage. Good faith isn’t just about following the letter of the contract—it’s about respecting its spirit, too.
This concept is often implied in contracts, even if it’s not explicitly written, and is key to fostering trust and cooperation in business dealings.
Why is good faith important?
Good faith is important because it creates a foundation of trust in business relationships. It ensures that parties act reasonably and work together to fulfill their responsibilities, even when challenges arise. Without good faith, misunderstandings, disputes, and bad practices can derail contracts or harm relationships.
For example, in a long-term partnership, acting in good faith might mean communicating openly about delays or issues rather than hiding them. It ensures that both sides prioritize fairness and the success of the agreement, not just their own interests.
Good faith is especially crucial in negotiations, contract performance, and resolving disputes. Courts often consider whether parties acted in good faith when deciding legal cases.
Understanding good faith through an example
Imagine a supplier agrees to deliver materials to a manufacturer by a specific date. A few days before the deadline, the supplier realizes they won’t make it on time due to unforeseen delays. Acting in good faith, they notify the manufacturer immediately, explain the situation, and work to find a solution, such as partial delivery or expedited shipping. This effort shows the supplier is trying to fulfill the contract honestly and fairly, even under difficult circumstances.
Now consider the opposite: if the supplier knowingly fails to meet the deadline and doesn’t communicate, the manufacturer could claim a breach of the good faith obligation, especially if the delay causes significant harm.
An example of a good faith clause
Here’s how a good faith clause might appear in a contract:
“The parties agree to act in good faith and use reasonable efforts to fulfill their responsibilities under this Agreement, ensuring fair and honest dealings at all times.”
Conclusion
Good faith is about more than just meeting contract terms—it’s about fostering fairness, trust, and open communication. It helps prevent disputes and encourages both parties to work together toward mutual success.
By understanding and practicing good faith in business dealings, you can build stronger relationships, protect your reputation, and ensure smoother contract performance. It’s a simple principle that makes a big difference in maintaining fairness and integrity.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.